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September 30, 2005
Dear GP Strategies Stockholder:
I am pleased to send you the attached prospectus concerning GSE
Systems, Inc. and notify you of the special distribution of shares of GSE
Systems common stock to the holders of GP Strategies common stock and Class B
Capital Stock. On June 21, 2005, the Board of Directors of GP Strategies
Corporation approved the spin-off of GP Strategies' approximately 57% interest
in GSE Systems through a special distribution of the shares of GSE Systems held
by GP Strategies to GP Strategies stockholders. As a result, GP Strategies
stockholders will receive in the spin-off .283075 shares of GSE Systems common
stock for each share of GP Strategies common stock or Class B Capital Stock
held.
GSE Systems provides simulation solutions and services to the nuclear
and fossil electric utility industry, the chemical and petrochemical industries
and to the US Military Complex. It also provides plant monitoring and signal
analysis monitoring and optimization software primarily to the power industry.
Shares of GSE Systems common stock are listed on the American Stock Exchange
under the symbol "GVP."
The enclosed Prospectus describes the distribution of shares of GSE
Systems common stock and contains important information about GSE Systems and
its business. I suggest that you read it carefully.
No action is required on your part to receive your GSE Systems shares.
You will not be required either to pay anything for the new shares or to
surrender any certificates representing shares of GP Strategies stock. However,
the distribution may be taxable to you as a dividend. Please read the
information set forth under the caption "Material Federal Income Tax
Consequences of the Spin-Off" in the attached Prospectus and consult your tax
advisor with respect to the income tax consequences of the distribution to you.
If you have any questions regarding the distribution, please contact
Lydia M. DeSantis at (914) 249-9700, or GSE Systems' stock transfer agent and
registrar, Continental Stock Transfer & Trust Company, Research Department, 17
Battery Place, 8th Floor, New York, NY 10004 Telephone: 212-509-4000.
Very truly yours,
Scott N. Greenberg
Chief Executive Officer
PROSPECTUS
GSE SYSTEMS, INC.
5,154,052 Shares of Common Stock
GP Strategies Corporation owns an approximately 57% interest in GSE
Systems, Inc. In this spin-off, GP Strategies will distribute all of its shares
of GSE Systems common stock to GP Strategies stockholders on a pro rata basis.
Each of you, as a holder of GP Strategies' common stock or Class B capital
stock, will receive .283075 shares of GSE Systems common stock for each share of
GP Strategies common stock or Class B capital stock you owned on the close of
business on September 19, 2005, the record date for the spin-off. If as a result
of the foregoing ratio you would be entitled to a fraction of a share of GSE
Systems common stock, you will receive cash in lieu of a fractional share
interest.
We are sending you this Prospectus to describe the spin-off. We expect
the spin-off to occur on or about September 30, 2005. You will receive your
proportionate number of shares of GSE Systems common stock through our transfer
agent's book-entry registration system. These shares will not be in certificated
form. Following the spin-off, recipient stockholders may request to receive
their shares of our common stock in certificated form. Immediately after the
spin-off is completed, GP Strategies will not own any shares of GSE Systems
common stock. We refer to ourselves in this Prospectus as "GSE Systems," "GSE,"
the "Company," or "we" or "us."
No stockholder action is necessary to receive your shares of GSE
Systems common stock. This means that you do not need to pay anything to GP
Strategies or to GSE Systems, and you do not need to surrender any shares of GP
Strategies' common stock or Class B capital stock to receive your shares of GSE
Systems common stock. In addition, a stockholder vote is not required for the
spin-off to occur. GP Strategies is not asking you for a proxy, and GP
Strategies requests that you do not send a proxy.
As you review this Prospectus, you should carefully consider the
matters described in "Risk Factors" beginning on page 3. Our common stock is
listed on the American Stock Exchange under the symbol "GVP." On September 19,
2005, the closing sale price of the common stock on the American Stock Exchange
was $1.53.
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These securities have not been approved or disapproved by the
Securities and Exchange Commission or any state securities commission nor has
the Securities and Exchange Commission or any state securities commission
passed upon the accuracy or adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
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This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities. Changes may occur after the date
of this Prospectus and neither GSE Systems nor GP Strategies will update the
information contained herein except in the normal course of their respective
public disclosures.
Stockholders of GP Strategies with inquiries related to the spin-off
should contact Lydia M. DeSantis at (914) 249-9700, or GSE Systems' stock
transfer agent and registrar, Continental Stock Transfer & Trust Company,
Research Department, 17 Battery Place, 8th Floor, New York, NY 10004, Telephone:
212-509-4000.
The date of this Prospectus is September 30, 2005.
TABLE OF CONTENTS
Page
WHERE YOU CAN FIND MORE INFORMATION...................................2
THE COMPANY...........................................................3
RISK FACTORS..........................................................3
THE SPIN-OFF..........................................................7
RELATIONSHIP BETWEEN GP STRATEGIES AND GSE SYSTEMS...................10
LEGAL MATTERS........................................................10
EXPERTS..............................................................11
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Special Note Regarding Forward-Looking Statements
This prospectus contains "forward-looking" statements that have been made
pursuant to the Private Securities Litigation Reform Act of 1995 which reflect
our expectations regarding our future growth, results of operations, performance
and business prospects and opportunities. Wherever possible, words such as
"anticipate," "believe," "plan," "expect" and similar expressions have been used
to identify these forward-looking statements. These statements reflect our
current beliefs and are based on information currently available to us.
Accordingly, these statements are subject to risks and uncertainties, including
those listed under "Risk Factors," which could cause our actual growth, results,
performance and business prospects and opportunities to differ from those
expressed in, or implied by, these statements. Except as otherwise required by
federal securities law, we are not obligated to update or revise these
forward-looking statements to reflect new events or circumstances.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC"). You may
read and copy any document we file at the public reference facilities of the SEC
located at Station Place, 100 F Street, N.E., Washington D.C. 20549. You may
obtain information on the operation of the SEC's public reference facilities by
calling the SEC at 1-800-SEC-0330. You can also access copies of this material
electronically on the SEC's home page on the World Wide Web at
http://www.sec.gov.
This prospectus is part of a registration statement (Registration No.
333-126472) we filed with the SEC. The SEC permits us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus. However, any information contained herein shall modify or supersede
information contained in documents we filed with the SEC before the date of this
prospectus. We incorporate by reference our Annual Report on Form 10-K for the
year ended December 31, 2004, filed on March 17, 2005, our Annual Report on Form
10-K/A for the year ended December 31, 2004, filed on May 2, 2005, our Annual
Report on Form 10-K/A for the year ended December 31, 2004, filed on August 15,
2005, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005,
filed on May 16, 2005, our Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 2005, filed on August 16, 2005, our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2005, filed on August 15, 2005, our Current Reports
2
on Form 8-K, filed on March 18, 2005, May 11, 2005, May 27, 2005, and August 11,
2005, our Current Report on Form 8-K/A, filed on August 16, 2005, and the
description of our common stock contained in our registration statement pursuant
to Section 12 of the Exchange Act, and any amendment or report filed for the
purpose of updating such description, filed by us with the SEC.
A copy of our Annual Report on Form 10-K for the year ended December
31, 2004, as amended, and our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005, are being delivered with this prospectus. You may write or
telephone us to obtain at no cost a copy of any or all of the documents
incorporated by reference. You should direct written requests to 9189 Red Branch
Road, Columbia, Maryland 21045, Attn: Secretary. Our telephone number is (410)
772-3500. However, we will not send you exhibits to a document, unless the
exhibits are specifically incorporated by reference in the document.
THE COMPANY
GSE Systems, Inc. is a leader in real-time, high fidelity simulation.
The Company provides simulation solutions and services to the nuclear and fossil
electric utility industry, the chemical and petrochemical industries and to the
US Military Complex. In addition, the Company provides plant monitoring and
signal analysis monitoring and optimization software primarily to the power
industry. Our executive offices are located at 9189 Red Branch Road, Columbia,
Maryland 21045. Our telephone number is (410) 772-3500. We maintain a Web site
at http://www.gses.com. Nothing contained in such Web site should be deemed a
part of this prospectus.
RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below may not be
the only ones we will face. Additional risks and uncertainties not presently
known to us or that we currently deem not material may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
The Company has limited cash resources. If the Company is unable to
generate adequate cash flow from operations, it will need additional capital to
fund its operations.
For the years ended December 31, 2003 and 2002, the Company experienced
net losses from continuing operations of $1.9 million and $4.3 million,
respectively, and had only $82,000 of income from continuing operations for the
year ended December 31, 2004. The Company also had a net loss of $1.6 million
for the first six months of fiscal 2005. The Company's backlog has decreased
from $30.4 million at December 31, 2003 to $19.6 million at December 31, 2004
and $14.7 million at June 30, 2005. The Company has cash available through a
credit facility of $1.5 million, of which $725,000 had been utilized at June 30,
2005. In addition, the Company recently issued and sold to an investor a senior
subordinated secured convertible note of the Company and a warrant to purchase
shares of our common stock for an aggregate purchase price of $2,000,000.
However, if the Company's income from continuing operations does not improve, it
may need additional capital to fund its operations. If adequate funds are not
available, GSE may be required to curtail its operations.
The Company will continue to rely on GP Strategies for certain
services.
The Company's business has historically relied on GP Strategies for
various services.
On January 1, 2004, the Company entered into a Management Services
Agreement with GP Strategies Corporation in which GP Strategies agreed to
provide corporate support services to GSE, including accounting, finance, human
resources, legal, network support and tax. In addition, GSE uses General
Physics' financial system. In 2004, GSE was charged $685,000 for General
3
Physics' services. The agreement has been extended through December 31, 2005
without an increase in the fee. The agreement can be renewed for successive
one-year terms.
In addition, the Company does not have an independent credit facility;
instead, $1.5 million of General Physics' available credit facility has been
carved out for use by the Company.
Although GP Strategies will no longer have any ownership interest in
the Company following the spin-off, the Company will continue to rely on these
services for the foreseeable future. However, there can be no assurance that GP
Strategies will continue to be willing to provide such services to the Company
after the spin-off.
The Company's expense levels are based upon its expectations as to
future revenues, so it may be unable to adjust spending to compensate for a
revenue shortfall. Accordingly, any revenue shortfall would likely have a
disproportionate effect on the Company's operating results.
The Company's revenues were $29.5 million and $25.0 million in 2004 and
2003, respectively, and $13.0 million for the six months ended June 30, 2005.
The Company's operating results have fluctuated in the past and may fluctuate
significantly in the future as a result of a variety of factors, including
purchasing patterns, timing of new products and enhancements by the Company and
its competitors, and fluctuating foreign economic conditions. Since the
Company's expense levels are based in part on its expectations as to future
revenues and includes certain fixed costs, the Company may be unable to adjust
spending in a timely manner to compensate for any revenue shortfall and such
revenue shortfalls would likely have a disproportionate adverse effect on
operating results. The Company believes that these factors may cause the market
price for its common stock to fluctuate, perhaps significantly. In addition, in
recent years the stock market in general, and the shares of technology companies
in particular, have experienced extreme price fluctuations. The Company's common
stock has also experienced a relatively low trading volume, making it further
susceptible to extreme price fluctuations.
Risk of International Sales and Operations.
Sales of products and the provision of services to end users outside the
United States accounted for approximately 65.1% of the Company's consolidated
revenue in 2004. The Company anticipates that international sales and services
will continue to account for a significant portion of its revenue in the
foreseeable future. As a result, the Company may be subject to certain risks,
including risks associated with the application and imposition of protective
legislation and regulations relating to import or export (including export of
high technology products) or otherwise resulting from trade or foreign policy
and risks associated with exchange rate fluctuations. Additional risks include
potentially adverse tax consequences, tariffs, quotas and other barriers,
potential difficulties involving the Company's strategic alliances and managing
foreign sales agents or representatives and potential difficulties in accounts
receivable collection. The Company currently sells products and provides
services to customers in emerging market economies such as Russia, Ukraine,
Bulgaria, and the Czech Republic. Although end users in the Ukraine accounted
for 20.7%, 28.7%, and 22.8% of the Company's consolidated revenue in 2004, 2003,
and 2002, respectively, GSE's customer for these projects was Battelle's Pacific
Northwest National Laboratory, which is the purchasing agent for the U.S.
Department of Energy ("DOE"). The DOE provides funding for various projects in
Eastern and Central Europe. Accordingly, the Company is not subject to the
political and financial risks that are normally faced when doing business in the
Ukraine. The Company has taken steps designed to reduce the additional risks
associated with doing business in these countries, but the Company believes that
such risks may still exist and include, among others, general political and
economic instability, lack of currency convertibility, as well as uncertainty
with respect to the efficacy of applicable legal systems. There can be no
assurance that these and other factors will not have a material adverse effect
on the Company's business, financial condition or results of operations.
4
The Company relies on one customer for a substantial portion of its
revenue. The loss of this customer would have a material adverse effect upon the
Company's revenues and results of operations.
For the years ended December 31, 2004, 2003, and 2002, one customer
(Battelle's Pacific Northwest National Laboratory) accounted for approximately
24.0%, 28.7%, and 22.8%, respectively, of the Company's consolidated revenue.
The Pacific Northwest National Laboratory is the purchasing agent for the DOE
and the numerous projects the Company performs in Eastern and Central Europe. If
the Company lost this customer, the Company's revenue and results of operations
would be materially and adversely affected.
The Company's business is substantially dependent on sales to the
nuclear power industry. Any disruption in this industry would have a material
adverse effect upon the Company's revenue.
In 2004, 85% of our revenue was from customers in the nuclear power
industry. The Company will continue to derive a significant portion of its
revenue from customers in the nuclear power industry for the foreseeable future.
The Company's ability to supply nuclear power plant simulators and related
products and services is dependent on the continued operation of nuclear power
plants and, to a lesser extent, on the construction of new nuclear power plants.
A wide range of factors affect the continued operation and construction of
nuclear power plants, including the political and regulatory environment, the
availability and cost of alternative means of power generation, the occurrence
of future nuclear incidents, and general economic conditions.
The Company's available credit facility imposes significant operating
and financial restrictions, which may prevent it from capitalizing on business
opportunities.
GSE's available credit facility, which has been carved out of General
Physics' credit facility, imposes significant operating and financial
restrictions. These restrictions affect, and in certain cases limit, among other
things, the Company's ability to:
o incur additional indebtedness and liens;
o make capital expenditures;
o make investments and acquisitions and sell assets; and
o consolidate, merge or sell all or substantially all of its assets.
At June 30, 2005, the Company was not in compliance with its debt
service coverage ratio. The Company obtained a letter dated August 4, 2005 in
which the lender has agreed to forebear from exercising its rights under the
credit agreement against the Company and other borrowers with respect to this
event of default until the Company has delivered to the lender the Company's
financial statements for the year ending December 31, 2005. Borrowings
outstanding under this arrangement are guaranteed by GP Strategies.
There can be no assurance that these restrictions will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interest of
stockholders.
The Company is dependent on product innovation and research and
development, which costs are incurred prior to revenues for new products and
improvements.
The Company believes that its success will depend in large part on its
ability to maintain and enhance its current product line, develop new products,
5
maintain technological competitiveness and meet an expanding range of customer
needs. The Company's product development activities are aimed at the development
and expansion of its library of software modeling tools, the improvement of its
display systems and workstation technologies, and the advancement and upgrading
of its simulation technology. The life cycles for software modeling tools,
graphical user interfaces, and simulation technology are variable and largely
determined by competitive pressures. Consequently, the Company will need to
continue to make significant investments in research and development to enhance
and expand its capabilities in these areas and to maintain its competitive
advantage. There can be no assurance that the Company will have the financial
resources to support such investments.
The Company relies upon its intellectual property rights for the
success of its business; however, the steps it has taken to protect its
intellectual property may be inadequate.
Although the Company believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements and reliable product maintenance are important to establishing and
maintaining a technological leadership position, the Company's business depends,
in part, on its intellectual property rights in its proprietary technology and
information. The Company relies upon a combination of trade secret, copyright,
patent and trademark law, contractual arrangements and technical means to
protect its intellectual property rights. The Company enters into
confidentiality agreements with its employees, consultants, joint venture and
alliance partners, customers and other third parties that are granted access to
its proprietary information, and limits access to and distribution of its
proprietary information. There can be no assurance, however, that the Company
has protected or will be able to protect its proprietary technology and
information adequately, that the unauthorized disclosure or use of the Company's
proprietary information will be prevented, that others have not or will not
develop similar technology or information independently, or, to the extent the
Company owns patents, that others have not or will not be able to design around
those patents. Furthermore, the laws of certain countries in which the Company's
products are sold do not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
The industries in which GSE operates are highly competitive. This
competition may prevent the Company from raising prices at the same pace as its
costs increase.
The Company's businesses operate in highly competitive environments with
both domestic and foreign competitors, many of whom have substantially greater
financial, marketing and other resources than the Company. The principal factors
affecting competition include price, technological proficiency, ease of system
configuration, product reliability, applications expertise, engineering support,
local presence and financial stability. The Company believes that competition in
the simulation fields may further intensify in the future as a result of
advances in technology, consolidations and/or strategic alliances among
competitors, increased costs required to develop new technology and the
increasing importance of software content in systems and products. As the
Company's business has a significant international component, changes in the
value of the dollar could adversely affect the Company's ability to compete
internationally.
GSE will continue to pursue new acquisitions and joint ventures, and
any of these transactions could adversely affect its operating results or result
in increased costs or other problems.
The Company intends to continue to pursue new acquisitions and joint
ventures, a pursuit which could consume substantial time and resources.
Identifying appropriate acquisition candidates and negotiating and consummating
acquisitions can be a lengthy and costly process. The Company may also encounter
substantial unanticipated costs or other problems associated with the acquired
businesses. The risks inherent in this strategy could have an adverse impact on
the Company's results of operation or financial condition. There can be no
assurance that the Company will have the financial resources to fulfill its
strategy.
6
The nuclear power industry, the Company's largest customer group, is
associated with a number of hazards which could create significant liabilities
for the Company.
The Company's business could expose it to third party claims with
respect to product, environmental and other similar liabilities. Although the
Company has sought to protect itself from these potential liabilities through a
variety of legal and contractual provisions as well as through liability
insurance, the effectiveness of such protections has not been fully tested.
Certain of the Company's products and services are used by the nuclear power
industry primarily in operator training. Although the Company's contracts for
such products and services typically contain provisions designed to protect the
Company from potential liabilities associated with such use, there can be no
assurance that the Company would not be materially adversely affected by claims
or actions which may potentially arise.
The terms of our recent financing may require us to issue an
indeterminate number of shares of our common stock which may be dilutive and
restrict us from taking certain actions.
We have recently issued and sold to an investor a senior subordinated
secured convertible note of the Company and a warrant to purchase shares of our
common stock. The note is convertible, in part or in whole, into shares of our
common stock based on a conversion price of $1.925. However, the conversion
price, and thus the number of shares into which the note may be converted, is
subject to adjustment if we issue or sell certain shares of common stock or
convertible securities for a consideration per share less than the then
effective conversion price, in which case the conversion price will be reduced
to an amount equal to the consideration per share in such new issuance. The
exercise price of the warrant, but not the number of shares for which it is
exercisable, is similarly subject to adjustment.
In addition, under the terms of the financing, while the note is
outstanding, the Company may not, among other things, (i) acquire, sell or
otherwise transfer any material assets or rights of the Company or a subsidiary,
or enter into any contract or agreement relating to the sale of assets, which is
not consummated pursuant to an arms length transaction, (ii) enter into any
contract, agreement or transaction with any officer, director, stockholder or
affiliate of the Company or a subsidiary other than ordinary course transactions
that are consistent with past practice and pursuant to arms length terms, (iii)
pay or declare any dividend or make any distribution upon, redeem, retire or
repurchase or otherwise acquire, any shares of capital stock or other securities
of the Company or a subsidiary, other than certain dividends currently owed to
ManTech International, (iv) materially change the Company's or any subsidiary's
line of business as currently conducted, or (v) incur any additional
indebtedness senior to the note. Furthermore, the note and the warrant each
prevent the Company from engaging in any fundamental transaction (such as a
merger, consolidation, or sale of the Company) while it is outstanding, unless
the successor assumes in writing all of the obligations of the Company under it
and the successor is a publicly traded company with common stock traded on the
Amex, Nasdaq, or the New York Stock Exchange.
THE SPIN-OFF
Background
GP Strategies, owns 5,154,052 shares of GSE Systems common
stock, or an approximately 57% interest in GSE Systems. The board of directors
of GP Strategies has determined to separate its interest in GSE Systems from its
other businesses by means of a spin-off. To accomplish the spin-off, GP
Strategies will distribute all of its shares of GSE Systems common stock on a
pro rata basis. A stockholder vote is not required or being sought for the
spin-off to occur.
7
Reasons for the Spin-Off
The GP Strategies Board of Directors has determined that the
distribution of all of its interest in GSE Systems to owners of GP Strategies
common stock and Class B capital stock will enable the management of each of GP
Strategies and GSE Systems to operate and develop those businesses more
effectively. The GP Strategies Board of Directors has concluded that the
spin-off is in the best interests of GP Strategies and GP Strategies'
stockholders because it believes that the spin-off will allow GP Strategies'
management to focus solely on its core business, General Physics, and will
simplify the financial presentation of GP Strategies thereby improving the
ability of investors to understand GP Strategies' financial position.
The GP Strategies Board of Directors explored various alternatives to
the spin-off, including a sale of its shares of GSE stock, but determined that
the spin-off would be in the best interests of GP Strategies' stockholders.
Manner of Effecting the Spin-Off
GP Strategies will effect the spin-off as of the close of business on
September 30, 2005. Prior to that time, General Physics has distributed to GP
Strategies all of the shares of GSE Systems common stock it held. GP Strategies
will distribute all of its shares of GSE Systems stock to the holders of GP
Strategies common stock and Class B capital stock on a pro-rata basis. As of
September 19, 2005, the record date for the distribution, there were 17,007,368
shares of GP Strategies common stock outstanding and 1,200,000 shares of GP
Strategies Class B capital stock outstanding. Accordingly, each holder of GP
Strategies stock on the record date will receive .283075 shares of GSE Systems
common stock for each share of GP Strategies common stock or Class B capital
stock held as of the close of business on September 19, 2005.
GSE Systems stock will be issued as uncertificated shares registered in
book-entry form through the direct registration system. No certificates
representing GSE Systems common stock will be mailed to registered holders of GP
Strategies common stock in the ordinary course. If you are a stockholder of
record of GP Strategies stock on the record date, GSE Systems' transfer agent,
Continental Stock Transfer & Trust Co., will hold your book-entry shares. On or
about September 30, 2005, Continental Stock Transfer will mail you a direct
registration transaction advice reflecting your ownership interest in shares of
GSE Systems common stock. When you receive this advice, you will receive
information explaining the direct registration system and telling you how to
obtain physical certificates if you desire to do so. You may also retain,
transfer or sell the shares, or transfer the shares to a brokerage account.
No owner of GP Strategies stock will be required to pay any cash or
other consideration for shares of GSE Systems received in the spin-off or to
surrender or exchange any shares of GP Strategies stock to receive shares of GSE
Systems.
GP Strategies and General Physics are "underwriters" within the meaning
of Section 2(a)(11) of the Securities Act as a result of the distribution by
General Physics of GSE Systems stock to GP Strategies and the distribution by GP
Strategies of GSE Systems stock to GP Strategies stockholders.
Treatment of Fractional Shares
Fractional shares of GSE Systems common stock will not be issued to
holders of GP Strategies stock as part of the distribution nor credited to
book-entry accounts. Instead, the distribution agent will aggregate fractional
shares into whole shares and sell them in the open market at then-prevailing
prices on behalf of holders who otherwise would be entitled to receive
fractional share interests, and such persons will receive a cash payment in the
amount of their pro rata share of the net sale proceeds. The distribution agent,
in its sole discretion, without any influence from GP Strategies or GSE Systems,
will determine when, how, through which broker-dealer and at what price to sell
such whole shares. Any broker-dealer used by the distribution agent will not be
an affiliate of either GP Strategies or GSE Systems. Sales of fractional shares
of our common stock are expected to be made as soon as practicable after the
distribution date, and checks representing proceeds of these sales will be
mailed thereafter. GP Strategies will bear the cost of brokerage commissions
incurred in connection with such sales. None of GP Strategies, the distribution
agent nor we guarantee that you will receive any minimum sale price for your
fractional shares of GSE Systems common stock. You will not be paid any interest
on the proceeds of the sale.
8
Results of Spin-Off
As of the close of business on September 19, 2005, GP Strategies had
approximately 1,283 stockholders of record. Except for holders of GP Strategies
stock who would be entitled to fractional shares only, each of these GP
Strategies stockholders will become stockholders of GSE Systems once the
spin-off is effected. Immediately after the spin-off is completed, GP Strategies
will not directly or indirectly own any shares of GSE Systems common stock. The
spin-off will not affect the number of outstanding shares of GP Strategies stock
or the rights of GP Strategies stockholders.
Shares of GP Strategies common stock are currently listed on the New
York Stock Exchange under the symbol "GPX." Prior to the record date for the
spin-off, GP Strategies stock will trade on a regular basis reflecting the value
of GP Strategies that includes its interest in GSE Systems. GP Strategies common
stock will continue to trade on the New York Stock Exchange following the
spin-off.
After the spin-off, shares of GSE Systems common stock will continue to
be listed on the American Stock Exchange under the symbol "GVP." The prices at
which the GSE Systems common stock will trade following the spin-off will be
determined by the marketplace and may be influenced by the spin-off.
GSE Systems common stock distributed in the spin-off generally will be
freely transferable under the Securities Act except for securities received by
persons who may be deemed to be affiliates of GSE Systems pursuant to Rule 405
under the Securities Act. Persons who may be deemed to be affiliates of GSE
Systems after the spin-off generally include individuals or entities that
control, are controlled by, or are under common control with GSE Systems,
including directors of GSE Systems. Persons who are affiliates of GSE Systems
will be permitted to sell their shares of GSE Systems common stock received in
the spin-off only pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act, such as the exemption provided by Rule 144 under the
Securities Act (subject to the conditions set forth in Rule 144, other than its
holding period requirements).
Other Consequences
The exercise price of outstanding GP Strategies options and warrants
will be adjusted based on the relative fair market values of the GP Strategies
stock before and after the spin-off.
Material Federal Income Tax Consequences of the Spin-Off
The following discussion is a summary description of the material U.S.
federal income tax consequences of the spin-off applicable to GP Strategies
stockholders. This discussion does not purport to consider all aspects of U.S.
federal income taxation that may be relevant to a GP Strategies stockholder.
This discussion is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing regulations and administrative and
judicial interpretations of the Code, all of which are as in effect as of the
date of this Prospectus and are subject to change, possibly with retroactive
effect. This discussion applies only to GP Strategies stockholders who hold
their shares of GP Strategies stock as capital assets within the meaning of
Section 1221 of the Code, and does not apply to the following:
o stockholders who received their shares of GP Strategies stock
as compensation;
o stockholders who hold their shares of GP Strategies common
stock as part of a "straddle," "hedge," "conversion
transaction," "synthetic security" or other integrated
investment;
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o stockholders, including, without limitation, financial
institutions, insurance companies, tax-exempt organizations,
dealers or traders in securities and stockholders subject to
the alternative minimum tax, who may be subject to special
rules;
o stockholders whose functional currency is not the U.S. dollar;
or
o stockholders who, for U.S. federal income tax purposes, are
non-resident alien individuals, foreign corporations,
foreign partnerships, foreign estates or foreign trusts.
This discussion also does not consider the effect of any foreign, state
or local laws or any U.S. federal laws other than those pertaining to the income
tax.
Accordingly, you should consult your tax advisor to determine the tax
effect to you of the spin-off, including the application and effect of foreign
or U.S. federal, state, local or other tax laws.
The distribution of the shares of GSE Systems common stock by GP
Strategies to its stockholders will be a taxable dividend to the stockholders to
the extent that the distribution is made out of current or accumulated earnings
and profits of GP Strategies. If the amount of the distribution exceeds current
and accumulated earnings and profits, the excess amount will be a tax-free
return of capital to the extent of the stockholder's tax basis in the GP
Strategies stock and then any remaining amount will be taxable gain to the
stockholder. No loss will be recognized. Any gain recognized by a stockholder
will be capital gain. Capital gains are long term if the GP Strategies stock is
held for more than twelve months at the time of the distribution. For
individuals, the maximum federal income tax rate applicable to long-term capital
gains and dividends is generally 15%.
Use of Proceeds
We will receive no proceeds from the distribution of GSE Systems common
stock.
RELATIONSHIP BETWEEN GP STRATEGIES AND GSE SYSTEMS
On January 1, 2004, the Company entered into a Management Services
Agreement with GP Strategies in which GP Strategies agreed to provide corporate
support services to GSE, including accounting, finance, human resources, legal,
network support and tax. In addition, GSE uses General Physics' financial
system. In 2004, GSE was charged $685,000 for General Physics' services. The
agreement has been extended through December 31, 2005 without an increase in the
fee. The agreement can be renewed for successive one-year terms.
In addition, the Company does not have an independent credit facility;
instead, $1.5 million of General Physics' available credit facility has been
carved out for use by the Company. While GP Strategies has guaranteed the amount
of such credit facility currently utilized by GSE Systems, there can be no
assurance that the credit facility would continue to be made available after
such amount was repaid.
GSE Systems and GP Strategies believe that these agreements are at fair
market value and are on terms comparable to those that would have been reached
in arm's-length negotiations had the parties been unaffiliated at the time of
the negotiations.
There can be no assurance that GP Strategies will continue to be
willing to provide such services to the Company after the spin-off.
LEGAL MATTERS
Certain legal matters with respect to the shares of common stock
offered by this prospectus have been passed upon by Andrea D. Kantor, General
Counsel of the Company.
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EXPERTS
The consolidated financial statements of GSE Systems Inc. as of
December 31, 2004 and 2003, and for each of the years in the three-year period
ended December 31, 2004, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
registered public accounting firm, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
GSE SYSTEMS, INC.
COMMON STOCK
PROSPECTUS
September 30, 2005